Accounting 3 - Financial Statements - Income Statement

Question 1

Income statement

Answer 1

Records the revenues, expenses, and net profit of a business over a specific period of time.

Question 2

Revenue

Answer 2

The amount of money a company has earned through the sale of goods or services.

Question 3

Cost of goods sold (COGS)

Answer 3

The expenses required to make goods or provide services. This includes the cost of materials and labor needed to make the good or provide the service. gross profit = revenue - COGS

Question 4

Gross margin

Answer 4

The percentage of total sales revenue that the company retains after COGS has been accounted for. gross margin = gross profit / revenue

Question 5

Selling, general and administrative (SG&A)

Answer 5

The expenses associated with selling goods and running a business, excluding COGS.

Question 6

Examples of SG&A

Answer 6

marketing and advertising, rent, utilities, insurance, legal fees, and salaries of employees that aren’t included in COGS.

Question 7

Operating Profit

Answer 7

The profit left over from revenues after COGS and SG&A. Also known as earnings before interest and taxes (EBIT). operating profit = gross profit - SG&A

Question 8

Operating margin

Answer 8

The percentage of total sales revenue that the company retains after COGS and all operating expenses have been accounted for. operating margin = operating profit / revenue. Efficient companies generate more operating profit with less revenue.

Question 9

EBITDA

Answer 9

Earnings Before Interest, Taxes, Depreciation and Amortization. Measures a company’s profitability before the impact of financing and investing decisions. EBITDA represents earnings strictly from operations.

Question 10

Earnings before tax

Answer 10

The figure used to calculate taxes owed to the government, also known as profit before tax, earnings before tax = operating profit - interest expense

Question 11

Principal

Answer 11

The original amount of a loan.

Question 12

Interest

Answer 12

The amount a creditor charges for a loan, interest expense = principal * interest rate

Question 13

Effective tax rate

Answer 13

The average rate at which a corporation?s earnings are taxed, effective tax rate = taxes / earnings before tax

Question 14

Net income

Answer 14

A firm?s earnings after paying all expenses, net income = operating profit - (interest + taxes)

Question 15

Net margin

Answer 15

The percentage of revenue remaining after all expenses have been deducted.net margin = net income / revenue